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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Temperament and not Timing

Posted by Muthu on April 4, 2011

Those of you who remember Harshad Mehta scam would remember the journalists Ms.Sucheta Dalal and Mr. Debashis Basu who brought it out to the world.

They were kind of enough to offer me an opportunity to write for Moneylife. I wrote last week about the present state of advisory community and the need for penetrating financial services and products across India, whose penetration levels in many areas is barely 1%.

I’ve been contributing to regional media (both print and visual) for last 3 years and this is my first exposure to national English media. Thanks to Moneylife for the same.

I do not advice or offer you anything which I don’t myself believe in.

That is what is helping us grow.

Though my temperament is not much worth speaking about in other aspects of life (if you want proof, check with my wife), it has helped me a lot when it to comes to investments.

I learned it the hard way – by trail and error and because of the inspiration I draw from Warren Buffett.

Some of the retired people, self employed and home makers want to keep themselves occupied through trading. This is a recipe for disaster.

You can keep yourself occupied by reading, watching mega serials, visiting temples, leading an active social life, gossiping and many other ways.

Trading is injurious to your financial, physical and mental well being.

Trading is very sophisticated and only a handful consistently makes money. The survival rate is abysmally low. It is predominantly a loser’s and zero sum game.

Trading is like some risky feats you watch in Discovery channel. It is possible only for few. It is not for commoners. Trust me; there is nothing uncommon about most of us.

Trading is an indication that you can time the markets.

You can safely assume that the day you make up your mind for timing the market, Lord Sani has cast his eyes on you. Ever heard the story of Nala Maharaja?

In the last 10 years (ending February’11), if you have missed just 20 best days in the market, you would not have earned even the saving bank account return.

Missing the 30 and 40 best days would have even eroded your capital.

Whereas if you have merely stayed invested, without missing any single day, you would have received an absolute return of 319%

Assuming you are now in the year 2001, how would you know which would be the best 10 or 20 days in the market during next one decade.

Impossible, isn’t it? How naïve when there are some who think that the market can be timed to perfection?

For more details on the above, please make it a point to go through our updated web page


Shefali Anand of Wall Street Journal cites one study of the American stock market over a 30-year period between the mid-1960s and mid-1990s where 95% of the significant market gains over this period came in just 90 trading days. That’s 90 days out of a total 7,500 trading days – just around 1%. Investors who had missed even one of those days would have lost heavily.

That’s why we suggest you equities for a barest minimum period of 10 years and asks you to stay invested during your entire investment tenure, ignoring market noises.

The best route is SIP as you would be able to capture all market cycles and optimize your returns.

SIP ensures that you stay invested in the markets and benefit from its inherent volatile nature.

I believe that handsome returns can be made during next couple of decades by investing in equities through SIP route because of the potential growth of our economy.

The growth story we are seeing is just only the beginning. Since there is so much to grow in various areas, as the base is abysmally low, we can participate and profit from the growth.

Our satisfaction comes from advising you on all aspects of personal finance. But definitely there is an added joy when you choose SIPs. We sincerely believe that long term SIP is the way to build one’s wealth.

No other asset class would be able to match the return of equity in the long run.

I would suggest that you be totally detached from the whole process and do not let the monthly statements you receive bother you in way.

I feel that you will start developing your own strong conviction once you stay in the course for atleast 5 years.

Trust me for now. Over a period, I would not be surprised if you start suggesting your near and dear, this simple but powerful and disciplined way of building wealth.

It is simple but not easy. Still developing a right temperament would be worth the effort. It would be extremely rewarding.

All the best.

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